Sometimes the cure is worse than the ill: an occasional look into the life of LSE DESTIN 2010

Health reform and the Chinese recipe to avoid social unrest

A previous post talked about the deterioration of the doctor-patient relationship and the consequent spike in aggression of the latter towards the former. This phenomenon was one of the consequences of the privatization of the Chinese health system. However, now the Chinese government seems to be addressing some of the shortcomings created by the dismantling of the public health system in the 1980s. Reuters reports:

“Beijing aims to complete landmark healthcare reforms by 2020 to ensure safe and affordable medical coverage for more than 1 billion Chinese, and plans to spend 850 billion yuan ($125 billion) on the initial stage to 2011.

With some hospitals charging exorbitantly for medical care and often demanding cash up front before providing treatment, basic medical care is currently beyond the reach of many ordinary Chinese, especially for the nation’s migrant workers”

Why is the Chinese government worrying about the increasing costs for healthcare of some its citizens? One explanation is given by Reuters

“That (the increased health costs) has prompted many people to save a greater chunk of their disposable income rather than spend it, which economists say is at the heart of the economic imbalance in the world’s second-largest economy.”

By diminishing the amount of household income spent on health related expenses, a bigger part would be spent on consumption thus stimulating the domestic market and readdressing the global imbalances. However, this explanation assumes that the Chinese government’s priority is to reduce the global trade imbalances. And this is not consistent with the artificial undervaluation of the yuan.

Another explanation has to do with the Chinese domestic policy and its recipe for social peace:

“Given the lack of political freedoms, the Chinese government’s legitimacy rests on its ability to deliver improved living standards and increased economic opportunity to the masses. So far those masses have little to complain about.” (Barry Eichengreen, professor at Berkley)

One part of the masses that is increasingly marginalized are the urban migrant workers from the countryside. Lacking a regular permit of residence they do not have any protections or benefits that formal workers have. And health care access is no exception. So to avoid that this situation creates ground for complaints and grievance amongst this population the government is taking steps to alleviate their costs of living. And in this way it hopes to avoid Egypt-style turmoil.